7 Key excerpts on "Promotional Pricing"

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  eBook - ePub

  Integrated Marketing Communication

  Advertising and Promotion in a Digital World

  • Jerome M. Juska(Author)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  Figure 9.2 . Since the final selection of a strategy depends on the current positioning of a brand and its value proposition, as well as the stage in the product life cycle, every brand decision will be different. It is the responsibility of the advertising or sales promotion to make that selection and allocate the required financial amount to design and deliver an offer to the targeted audience.

  Figure 9.2 Implementation Tactics for Sales Promotion

  Price Reduction Strategies

  Coupons, buy-one/get-one, cash back, purchase volume, minimum quantity, special models, and featured items.

  Retail Deal Offers

  Extra product, free trial, amenities, free gifts, self-liquidations, and on-pack items.

  Psychological Rewards

  Loyalty programs, exclusive experiences, membership clubs, reward points, special recognition, event privileges, and VIP treatment.

  Targeted Interactions

  Brand sampling product demonstrations, sweepstakes, contents, digital problem solving, online game access, and virtual events.

  Price Reduction Strategies

  Although financial incentives are classified as sales promotions, they also can be described as “invisible” pricing strategies. By reducing the final purchase price of a product or service, these incentives make a brand more attractive and affordable for consumers. When shoppers are more aware of these financial incentives, the probability of a purchase increases. Lower prices always motivate people, especially when they are searching online. It is a proven strategy that attracts new customers and immediately takes sales away from competitive brands.

  The most frequently used financial incentives for consumer promotions are paper coupons, digital coupons, BOGO (buy-one, get-one), cash back, rebates, minimum quantity, special models, and sale-only items. B2B promotions also involve financial incentives, but how and when they are offered are different than the reduction in the cost for a consumer product or service. The relationship between a manufacturer and a wholesaler, or any channel member and a retailer, determines the final amount paid. The majority of discounting is based on the types and value of the products and services purchased, but there are many other forms of concession. In Chapter 12

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  Decision Making in Marketing and Finance

  An Interdisciplinary Approach to Solving Complex Organizational Problems

  • P. Koku(Author)
  • 2014(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  CHAPTER 9 Pricing and Sales Promotion

  The price at which to sell a firm’s offerings, for several reasons, is one of the most important decisions for a firm. Price is the only variable that generates revenue for the firm, therefore it is the engine or, better still, the gasoline in the engine that keeps the firm running. A mistake in pricing could easily make the firm go bankrupt or out of business. Several books have been written on pricing and economists have devoted a significant effort to the study of pricing, yet our understanding on how consumers use price is incomplete because there is a big psychological component to it. Though the psychological aspect of price still remains a black box to some extent, our current understanding can be useful to organizations particularly in terms of how they strategize to meet the consumers’ unmet needs, and also deep enough not to use price as a strategic variable because it can be easily copied by competition. We also know that price can be used as a signaling variable to convey nonobvious information on quality (as discussed in chapter 4 ).

  It is safe to say that regardless of other issues or objectives that might be associated with pricing, the basic pricing objective is to maximize profit. Of course, others along the veins of Simon (1972) will argue that the objective is to optimize profit. However, because the concept of profit maximization is intuitively appealing and simple, and for practical purposes not wrong, we will, in this discussion, stick to that concept.

  There are two basic types of pricing strategies that are often used: full-cost pricing strategy and the variable-cost pricing strategy. Full-cost pricing strategy is based on the logic that the price paid by the customer should reflect not only the costs incurred in making the product/service but also a “profit.” Diagrammatically, price can be shown to contain three strands (fixed cost, variable cost, and margin) as depicted in figure 9.1

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  The ROI of Pricing

  Measuring the Impact and Making the Business Case

  • Stephan Liozu, Andreas Hinterhuber, Stephan Liozu, Andreas Hinterhuber(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  3

  IS THERE A LONG-TERM RETURN ON PRICE PROMOTIONS?

  Carmen Balan

  Introduction

  In the turmoil of the recent economic crisis, the use of price promotions became a common practice for many marketers, with the aim to stimulate demand in the short run. The question is whether companies have evaluated the long-term impact of such marketing tools.

  Price promotions are defined as temporary price discounts offered to a customer (Blattberg et al. 1995, p.G122). At the beginning of the 1990s, promotions represented 65 per cent of the typical marketing budget in the USA. However, a research on 65 product categories showed that 84 per cent of trade promotions were unprofitable (Abraham and Lodish 1990, p.51).

  During the past decade, the research priorities set by the Marketing Science Institute (MSI) progressively included different topics focused on marketing performance. In 2008–2010, accountability and return on investment (ROI) of the marketing expenditures emerged as the first item on the list of 16 top research priorities of the MSI (Marketing Science Institute 2008). In 2010, research was required to help firms evaluate and compare the long-term value of alternative marketing strategies. The identification of effective strategies of allocating resources to marketing activities became the seventh research priority (Marketing Science Institute 2010). The quantitative research on price promotion reflected this shift in marketing science priorities.

  Measuring the impact of the marketing actions should not be limited to the assessment of the financial impact under the form of ROI. The reason is twofold. On one side, the calculation of the short-term ROI disregards the long-term impact of marketing expenditures. On the other side, laying the accent on ROI neglects effectiveness and may lead to diminished profits in the long term. The financial impact is only one facet of the marketing actions. Researchers suggest a productivity chain approach (Rust et al. 2004). According to this chain, the impact of marketing strategies and tactics is multifold. In essence, marketing strategies and tactics have customer impact (on customer awareness, associations, attitudes, attachment and experience), market impact (on market share, sales, competitive market position, etc.), financial impact (ROI, economic value-added, etc.) and impact on firm value (market value-added, stock market performance).

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  Market Research in Practice

  An Introduction to Gaining Greater Market Insight

  • Paul Hague(Author)
  • 2021(Publication Date)
  • Kogan Page

    (Publisher)

  20

  Using market research to achieve optimum pricing

  The importance of price

  The marketing mix breaks the components of an offer into product, price, place (routes to market) and promotion. Marketers must make informed decisions with respect to each of these, but it is arguably price that is the most difficult and the most important of the four Ps to understand.

  Price is the currency exchanged for the other three Ps, and a measure of the value a target audience places on the offer. Pricing is not only a crucial marketing decision; it is a fundamental business decision. There are only three ways for a company to increase its profits: sell more, cut costs or raise prices. A well-known study by McKinsey found that for the average company a 1 per cent increase in price would generate an 8 per cent increase in operating profit.

  Logically, businesses should devise comprehensive strategies to get their pricing right. In reality, the decision as to how much to charge is frequently neglected by strategic decision makers, poorly implemented by commercial teams or delegated to inexperienced people. It is estimated that just 1 to 2 per cent of large UK, US and German businesses have written pricing policies against more than 70 per cent who have written promotional plans. Sales people tend to be incentivized by revenue not price, and firms are far better at measuring the revenue – rather than the profits – that employees generate.

  While pricing market research is becoming more common, it still represents less than 10 per cent of projects conducted, demonstrating further the view that companies neither emphasize nor understand price sufficiently.

  What do we mean by price?

  When researching price or setting prices it is essential to be clear on which definition of price we are referring to. Some of the various definitions are explained below.

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  The Retail Champion

  10 Steps to Retail Success

  • Clare Rayner(Author)
  • 2012(Publication Date)
  • Kogan Page

    (Publisher)

  As touched on above, it’s critical to ensure you include pro motional activity in your budgeting. Budgeting for promotions is not only about the product margins and discounts; it is also a key element of your marketing budget. Often promotions are less about the price cuts and discounts than they are about creating some excitement around a product/range or a sense of urgency to buy an item while it is still available.

  If you allow some budget for visual merchandising, window dressing /window posters, in-store signage and creating an in-store feature, you can draw a lot of attention, create a sense of ‘newness’ about the in-store display, and feature products relevant to the ‘theme’ of the promotion, without actually having to do much in the way of discounting.

  However, consumers are smart and when the rest of the high street is offering discounts, deals and offers you will have to follow suit otherwise you’ll look out of place. So, when it comes to your overall business planning and forecasting you do need to estimate that only 70 per cent of the buy quantity of each item will sell at full price, with say 20 per cent selling at a reduced price (a mix of promotions and clearance) and potentially 10 per cent not selling at all or only recovering its original cost price.

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  Fundamentals of Marketing

  • Marilyn Stone(Author)
  • 2007(Publication Date)
  • Routledge

    (Publisher)

  Each element within the marketing mix must also be integrated with the others. For example, extensive advertising may be used with a high selling price because the added margin permits the extensive advertising which in turn creates the product positioning to justify a higher price. Ralph Lauren, Perrier and Stella Artois are national brands employing integration in this form. Integration of price is also found with Promotional Pricing, where lower prices are combined with advertising and merchandising. Leverage in the marketing mix is obtained by using each element to the best advantage in support of the total marketing mix. For example, if promotion pricing in the form of rebates is more effective at building market share than either heavy advertising or improved distribution, then it would be advisable to invest in price discounts through rebates. If discounts result in diminishing returns, however, it would be better to shift the emphasis to another element that will bring greater returns per unit of investment. Beer and soft drinks are examples of products where the price element leverage is in the form of lower promotional prices.

  PRICING OBJECTIVES

  Prices should relate to the objectives of the firm. The price needs to be weighed against the impact on the firm’s other products, the need for short-term profits against longer-term market position, and ‘skimming’ as opposed to ‘penetration’ objectives. For example, in launching a new product, a company may decide that, as it is the first to market, there will be little competition and so it will be able to ‘skim’ the market by charging a relatively high price. Alternatively, it may decide to enter the market at a relatively low price so as to gain a high market share before competitors enter. This, in turn, will allow the firm to benefit from experience curve effects. Each decision rests on different sets of assumptions made by planners. On the other hand, pricing may be geared towards earning a particular rate of return on funds invested or, indeed, on making a profit on the product range as a whole. In the latter case a strategy involving ‘loss leaders’ may be used whereby products are sold below their cost of production to encourage purchases of other more profitable products.

  Setting pricing objectives

  As with objectives in any area of management, pricing objectives must be clearly defined, time-specific and consistent with each other. The four types of objectives that pricing decisions can help achieve are:

  • Income-related. How much money can be made?
  • Volume-related. How many units can be sold?
  • Competition-related. What share of the available business is wanted?
  • Societal. What are the responsibilities to customers and society as a whole?

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  Creating a Business

  • Jenny van Sten-van't Hoff(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  COOOL’s target market consists of young European business graduates. The sales manager decides to start promotion activities by advertising in business journals in combination with direct marketing. His database of customers is derived from bought lists of business school graduates attending various European universities. At a later stage, he will introduce television spots showing business people wearing their casual clothes and develop COOOL’s own website.

  4.3 Pricing objectives and decisions

  When pricing a new product, the manager should try to satisfy three objectives:

  1. get the product accepted
  2. maintain market share as competition grows by using various promotion techniques
  3. earn a profit.

  Pricing objectives

  Pricing objectives should thus be tied to the marketing and financial objectives, and the strategic direction and objectives in the marketing planning process. For example:

  • financial: to support profitability, return on investment (see chapter 6 ) and to cover costs (see chapter 7 )
  • marketing: to support higher market share, higher sales, and customer acquisition.

  However, firms have to trade off one type of pricing objective for another. A company can rarely achieve high profitability with simultaneously raising its market share to a much higher level.

  One pricing factor entails understanding both the firm’s costs and break-even point, the sales level at which revenues cover costs (see section 7.5 ).

  Another factor affecting pricing is customers’ perception. If customers deem the price too high in relation to the benefits, they simply won’t buy, which will lower demand. However, if the price is perceived as too low for the level of quality that the customer expects, demand will also suffer. The competitive situation provides yet another factor: by analysing the prices, special deals, and probable costs of competing products, a company can get a better sense of the alternatives that are available to customers and the pricing objectives and strategies set by rivals.

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